Markets nosedive on surging virus cases, stimulus doubts

Global shares rattled on Monday as surging coronavirus cases in Europe and the United States clouded the global economic outlook, while China’s leaders meet to plan the country’s economic future.

The United States has seen its highest-ever number of new COVID-19 cases in the past two days. France also set case records and Spain announced a state of emergency.

The coronavirus resurgence, along with no clear progress on a US stimulus package and caution before the Nov. 3 U.S. election, dragged the MSCI world equity index down 0.3%. In Europe, the Euro STOXX 600 shed 1%. S&P 500 futures fell 1%.

“The decreasing likelihood of U.S. fiscal stimulus pre-election, possibly even pre-year-end, as well as worsening virus numbers and increasing lockdown measures, all seem to be taking the shine off what was a rather complacent market view of the outlook,” said James Athey, investment director at Aberdeen Standard Investments.

Europe became the second region after Latin America to surpass 250,000 deaths on Saturday, according to a Reuters tally, as many European countries reported their highest number of COVID-19 cases in a single day.

Milan’s blue-chip index sank 1% as new curbs on public venues overshadowed Friday’s news that ratings agency S&P Global had upgraded the nation’s sovereign outlook to stable from negative.

The German DAX slumped 2.7% to a three-month low after software company SAP abandoned medium-term profitability targets and warned its business would take longer than expected to recover from the pandemic.

Sentiment was also hit by a survey showing German business morale fell for the first time in six months in October.

Reports of progress in a COVID-19 vaccine being developed by the University of Oxford and manufactured by drug maker AstraZeneca Plc helped limit some of the market sell-off, analysts said.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.2%. Japan’s Nikkei finished 1% lower, and South Korea’s main index lost 0.7%.

Chinese blue chips shed 0.6% as the country’s leaders met to chart the nation’s economic course for 2021-2025, balancing growth with reforms amid an uncertain global outlook and worsening relations with the United States.

In a packed week for monetary policy decisions, Canada’s and Japan’s central banks are expected to hold fire for now. Markets assume the European Central Bank will sound cautious on inflation and growth even if it skips a further easing.

Data due out Thursday is forecast to show a consumer-led 31.9% rebound in US economic output in the third quarter, after the second quarter’s historic collapse. Analysts at Westpac noted such a bounce would still leave 2020 GDP around 4% below last year’s, with business investment still lagging badly.

As markets increasingly price in the likelihood of a Democratic president and Congress and resulting rise in government spending and borrowing, US 10-year Treasury yields hit their highest since early June last week at 0.8720% . They were trading at 0.81% on Monday.

“We have raised the probability of a Democratic sweep, already our base case, from 40% to just over 50% and have increased our expectation of Biden to win from 65% to 75%,” NatWest Markets analysts said. “We see steeper US yield curves and a weaker USD as likely to prevail in our base case.”

Italian government bond yields slid across the curve, with short-dated yields falling to a one-year low, after S&P Global’s unexpected outlook upgrade.

The benchmark 10-year yield dropped 6 basis points to 0.70% . Short-dated two-year Italian yields hit their lowest level in a year at -0.382%.

Surging coronavirus cases sent investors to the safety of the dollar after it fell broadly last week.

An index tracking its value against a basket of currencies firmed 0.1% to 92.92, while euro/dollar - the most traded currency pair and part of the index - fell 0.3% to 1.1826 .

In commodity markets, gold was 0.1% higher at $1,902.06 per ounce.

Oil prices extended last week’s losses as the prospect of increased supply and resurgent coronavirus infections worried investors.

Brent crude was down 1.9% at $40.97 a barrel. US West Texas Intermediate (WTI) dropped 2.1% to $39.03.

Meanwhile, sales of new homes fell by 3.5% in September to a seasonally-adjusted annual rate of 959,000 million units.

The Commerce Department said Monday that despite the modest decrease, sales of new homes are up 32.1% from a year earlier, as the housing market remains strong despite the pandemic. New home sales for August were revised downward to 994,000.

The strong pace of home sales continued through the summer, driving home prices in many places to record highs.

The median price of a new home sold was $326,800, according to the Commerce Department.

Agencies